Variables and units
Operating Expenses
Annual operating expenses.
currency
Debt Service
Annual debt service.
currency
Gross Potential Income
Maximum possible annual income.
currency
Real Estate · Income
Break-Even Occupancy Rate
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Use break-even occupancy to see how much of the rentable space or income base must be filled before the property covers operating costs and debt.
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Stabilized office property
Operating Expenses+Debt ServiceGross Potential Income
The property needs 70% of gross potential income to cover annual expenses and debt service.
Common mistakes
- Using collected income instead of gross potential income.
- Leaving annual debt service out of the numerator.
Step-by-step example
Stabilized office property
1. Start with the example inputs
- Operating Expenses$300,000
- Debt Service$120,000
- Gross Potential Income$600,000
2. Apply the formula
Operating Expenses+Debt ServiceGross Potential Income3. Run the numbers
70%
The property needs 70% of gross potential income to cover annual expenses and debt service.
What this result means
A break-even occupancy of 70% means that share of the property's full income potential must actually be collected before expenses and debt are covered. The gap between this number and realistic market occupancy is your safety margin — a break-even far below typical occupancy leaves room for vacancies and surprises; one close to 100% leaves almost none.